- 19 -
163(d)(4)(B)(ii). This gives petitioners a $75,90016 long-term
capital loss, and therefore, zero net capital gain. Net gain is
also equal to zero because total gains do not exceed total losses
($49,017 less $75,900). Therefore, petitioners have net
investment income of $5,044 and an allowable investment interest
expense deduction of $5,044.
Petitioners selectively chose to include the loss carryover
when it placed them in a better tax position. Thus, petitioners
included the loss carryover for purposes of calculating the
$3,000 capital loss deduction. If petitioners had not included
the loss carryover when calculating their overall capital loss,
they would have had an overall capital gain rather than a capital
loss.
We hold as a matter of law that petitioners’ loss carryover
is an integral part of the equation in calculating investment
income under section 163(d)(4)(B). Were the loss carryover not
included, petitioners would receive a double tax benefit. Under
petitioners’ approach, long-term capital gains would be offset by
the loss carryover and not subjected to taxation. Then, those
same capital gains that escaped taxation would be used to
increase investment income and, simultaneously, the investment
interest expense deduction. Essentially, petitioners would
16This is the sum of Schedule D, lines 8, 9, and 14 (-$3,601
+$69,322 -$141,621).
Page: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 NextLast modified: May 25, 2011